Lecture 4

Ethics and Social Responsibility

Ethics
The set of moral principles or values
that defines right and wrong for a
person or group.

Ethics

A society of Human Resources Management Survey showed

that:
only 27% of employees felt that their organizations
leadership was ethical

48% of respondents admitted to actually committing an

unethical or illegal act in the pervious year
cheating on an expense account
discriminating against coworkers
forging signatures
paying or accepting kickbacks
looking the other way when environmental laws were
broken

Ethics

On the other hand, there are also good news:

when people believe their work environment is ethical,

they are 6 times more likely to stay with the company than
if they believe they work in an unethical environment

One study asked 570 white-collar workers which of 28

qualities were important in company leaders
The results: honesty and integrity/morals/ethics ranked
by far the highest
caring/compassion was the third

Ethics and the nature of management jobs

Ethical behavior follows accepted principles of right

and wrong

By contrast, unethical management behavior occurs

when managers personally violate accepted principles
of right and wrong

e.g. lying about corporate profits

knowingly producing an unsafe product
exploiting workers
bribing a potential customer
using corporate funds for extravagant personal parties

Unethical management behavior

Unethical Managerial Behavior
Authority and Power
Handling Information
Influencing the Behavior of Others
Setting Goals

How to encourage ethical behavior

Managers can encourage ethical

behaviors by

using resources for company business only

handling information confidentially

not influencing others to engage in

unethical behavior

not creating policies that reward employees

for unethical behavior

setting reasonable goals

Workplace deviance

Depending on which study you look at, 1/3 to 3/4 of all

employees admit that they have:

stolen from their employers

committed computer fraud

embezzled funds

vandalized company property

faked injuries to receive workers compensation benefits

We define workplace deviance as unethical behavior that violates

organizational norms of right and wrong

Types of Workplace Deviance

Influences on ethical decision making

In making ethical decisions, the answers
that managers give to ethical questions
depends on:

Ethical Intensity of Decision (managers dont

treat all ethical decisions the same)

Moral Development of Manager

Ethical Principles Used

Tall and slender, Richard Addessi, and IBM employee, was an

apparently healthy man.

On Feb. 11, 1994, despite a heavy snowstorm that crippled

workplaces, he prepared to go to work. In his garage, he suffered a
massive heart attack and died at 48.
He was only four months short of full retirement.
With the 30-year pension, Joan Addessi and her children would get
almost $1,800 a month and free lifetime medical care.
Without it, she gets $340 a month and has to pay $473 a month for
medical benefits.
As VP in charge of benefits, you have to decide whether to award full
retirement benefits to Joan and her children

Ethical Intensity Depends on

Magnitude of consequences
total harm or benefit derived from an ethical decision
Social consensus
agreement on whether the behavior is bad or good
Probability of effect
the chance that something will happen and then result in
harm to others
Temporal immediacy
the time elapsed between the act and the consequences
the act produces
Proximity of effect
the social, psychological, cultural or physical distance of
the decision maker from those affected by his decision
Concentration of effect
how much an act affects the average person

Kohlbergs Stages of Moral

Development

Principles of Ethical Decision Making (think

of Addessi case for application example)
Long-term self-interest
Personal virtue
Religious injunctions

Government requirements
Utilitarian benefits
Individual rights

Distributive justice

Principle of long-term self interest

Never take any action that is not in

your organizations long-term selfinterest

Principle of Personal Virtue

Never do anything that is not honest,

open, and truthful and that you would
not be glad to see reported in the
news.

Principle of Religious Injunctions

Never take any action that is not

kind and that does not build a
sense of community.

Principle of Government
Requirements
Never take any action that violates
the law, for the law represents
the minimal moral standard.

Principle of Utilitarian Benefit

Never take any action that does not

result in greater good for society.

Principle of Individual Rights

Never take any action that infringes on

others agreed-upon rights.

Principle of Distributive Justice

Never take any action that harms the

least fortunate among us:
the poor, the uneducated,
the unemployed.

Practical Steps to
Ethical Decision Making
Select and hire ethical employees

Establish a Code of Ethics

Train employees to make ethical decisions

Create an ethical climate

Code of Ethics

Communicate code of ethics to both

inside and outside the company

Develop ethical standards and

procedures specific to business

Ethics Training

Develops employee awareness of ethics

Achieves credibility with employees

Teaches a practical model of ethical

decision making

A basic model of ethical decision making

1. Identify the problem: What makes it an ethical problem ?

Think in terms of rights, obligations, fairness, relationships, and
integrity. How would you define the problem if you stood the
other side of the fence ?
2. Identify the constituents: Who has been hurt ? Who could
be hurt ? Who could be helped ? Are they willing players, or are
they victims ? Can you negotiate with them ?
3. Diagnose the situation: How did it happen in the first place
? What could have prevented it ? Is it going to get worse or
better ? Can the damage now be undone ?

A basic model of ethical decision making

4. Analyze your options: Imagine the range of possibilities.

Limit yourself to the two or three most manageable. What are
the likely outcomes of each ? What are the likely costs ? Look
to the company mission statement or statement of core
values/code of ethics for guidance
5. Make your choice: What is your intention in making this
decision ? How does it compare with the probable results ?
Can you discuss the problem with the affected parties before
you act ? Could you disclose without qualm your decision to
your boss, the CEO, the Board of Directors, your family, or
society as a whole ?
6. Act: Do what you have to do. Dont be afraid to admit errors.
Be as bold in confronting a problem as you were in causing it.

Ethical Climate part of organizational culture

Managers:
1.
2.
3.
4.

5.

Act ethically
Are active in company ethics programs
Report potential ethics violations
Punish those who violate the code of ethics
Show leadership in the ethical sphere

What Is Social Responsibility?

A businesss obligation to
pursue policies
make decisions
take actions that benefit society

To Whom Are Organizations

Socially Responsible?
Shareholder
Model

Maximize Profits

Stakeholder
Model

Satisfy Interests
of Multiple Stakeholders

Shareholder Model

Pros
Firm maximizes
shareholder wealth and
satisfaction

Cons
Organizations cannot act
effectively as moral agents
for shareholders

The company stock

increases in value

Time, money, and

attention diverted to social
causes undermine market
efficiency

Stakeholder Model
Primary
Stakeholders:

Secondary
Stakeholders:

Shareholders
Employees
Customers
Suppliers
Governments
Local Communities

Media
Special Interest Groups
Trade Associations

Social Responsibilities

Social Responsiveness

Social Responsibility and

Economic Performance
No trade-off
Small, positive relationship
Social reputation

Relevant videos

Business ethics

https://www.youtube.com/watch?v=ghokREsbaoI
https://www.youtube.com/watch?v=R7sPDHrHj8c

Corporate social responsibility

https://www.youtube.com/watch?v=E0NkGtNU_9
w
https://www.youtube.com/watch?v=XWNol3TxvtI

Home assignment

Form a team of 2-3 persons and each read the

McKinsey case carefully. Choose a team member to play
the role of Dominic Barton, the other team mates to play
the role of members of the Crisis Management Team
Then get together, discuss the case and analyze the
issues based on what you learned in class, specifically
the BASIC MODEL OF ETHICAL DECISION MAKING
Be prepared to present and discuss the issues and your
decision next class